Motley Fool Hidden Gems Investing - Dan Ariely on Money Mistakes

Episode Date: December 22, 2017

FedEx soars. Nike struggles. Alphabet and Papa John’s get new leadership. Our analysts discuss those stories and more. Plus at the 19:53 mark, best-selling author Dan Ariely shares how we can make better decisions about our money. Thanks to Slack for supporting The Motley Fool. Learn more at www.slack.com Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill, and joining me in studio this week from Million Dollar Portfolio, Jason Moser. From Rule Breakers, Aaron Bush. From Motley Fool Pro and Options, Jeff Fisher. Good to see you as always, gentlemen. Hello.

Ho, ho, Chris. Ho, ho, ho, indeed. We've got the latest on retail, Bitcoin, restaurants, and more. Best-selling author Dan Ariely is our guest. And as always, we'll give you an inside look at the stocks on our radar. But in keeping with the holidays, we begin with the shipping business. Shares of FedEx hitting a new all-time high this week after second quarter profits and revenue both came in higher than expected. Jeff, this was a great quarter for FedEx. It really was. You had adjusted earnings per share up 15%. And this is on top of a five-year

compounded growth rate of 11% in earnings per share, 7% in sales. And this is, in spite of the company only seeing moderate growth in the global economy. That said, couple that with consumer confidence at a 17-year high, and of course, e-commerce continuing to grow. And FedEx is really doing well, Chris. Meanwhile, margins expanded in all three of its main divisions, ground freight and international TNT. And they see higher margins ahead as they find more and more efficient ways to do their business. It's been a great investment over the long term, even though it's not an inexpensive business to run. It's, in fact, very expensive to run. CapEx should be around $6 billion next year, and that's right in

line with what it always does. My only critique of FedEx is, it generates minimal free cash flow, historically, and none the past year or two. That's a little surprising, because FedEx has always struck me as one of those businesses that has the thing that Warren Buffett has said is his favorite thing to see in a business, which is pricing power. So, when you combine their pricing power with you mentioned e-commerce, is there anyone around this table who doesn't think e-commerce is going to go anywhere but up over the next 10, 20, 30 years? I mean, this kind of seems like a little bit of a no-brainer stock. It certainly will keep going up, but

That means you need more trucks, more airplanes, more staff, so the expenses go up as well. A fascinating stat, too, which we may know, we've talked about it before, is 15% of all goods purchased online are returned, and about 30% of all apparel bought online is returned, which can be good for FedEx, but not so good for the retailers themselves. I think that's the scariest part about this part of that chain, so to speak, the shipping and logistic side of it. I mean, it's historically just an expensive business to run, but I think as we, every week, seem to frame up some way that Amazon is becoming a bigger player in this space. I mean, we look at all of the third-party sellers that are now participating

on Amazon's platform. I think we're in the middle of this sort of paradigm where more and more retailers have to use Amazon in order to be successful. I feel like Amazon is going to be the better way maybe to play that. As they pursue that shipping and logistics space with all of the data and the expertise they have there, they are entering more and more into that fray. So, while FedEx and UPS are the no-brainers, those are also very obvious winners. Everybody knows those two companies. I guess the real work is in trying to figure out what business out there is going to exploit that second-level thinking, so to speak. Yeah, of course, Amazon is building out its own shipping and logistics and buying

planes and all that. FedEx is non-plus by that. They don't feel at risk by it. No single customer accounts for more than 3% of FedEx's revenue or volume, even though they do a lot of business with Amazon. In some, Chris, FedEx trades at 23 times earnings, 17 times expected earnings. It is well-run, despite being an expensive business. And the lazier I get when it comes to investing, the more FedEx would appeal. I'm looking for businesses with really solid long-term financials, and FedEx does have those. To go back to Buffett, his right-hand man, Charlie Munger, I like to buy great businesses and then sit on my butt. Nike's second quarter profits came in higher than expected, but

shares falling on Friday as investors seemed more concerned, Jason, with Nike's sales in North America. That was, I think, really the big question mark. When you see a company like Nike grow their sales for the quarter like they did, and yet earnings still fall, that's a big problem. And I think, really, this goes to show that, even with all of their self-inflicted wounds that Under Armour has committed here over the past year, I mean, this really goes to show, we were talking about that new retail paradigm, I mean, this is a different world now, and nobody is immune, including Nike, an extremely powerful global brand. But, as

you mentioned, North America, that is a business that is really changing. Wholesale business in North America, big challenge for Nike, big challenge for Under Armour. And I don't know that the answer is just around the corner. I mean, these are companies that are building more of the direct-to-consumer strategy out, and that's good, but they are suffering from the troubles of companies like Sports Authority and Dick's Sporting Goods and whatnot. So, I mean, on the good side here, Nike Direct, revenue was up 15%, online growth of 29%, comp store growth of 6%. They're doing the right things to get this North America business back in order, and it's nice that they have that global exposure to make up for shortcomings

in other areas. The thing is, with Nike, you have a business that's done a very good job historically buying back shares. They brought the share count down about 10% since 2013. It still only yields about 1.2% today on the dividend side. Given this tax legislation that's going through, it's reasonable to assume that the buybacks will continue, probably accelerate. Dividend will likely go up over time. This is a business we own a million dollar portfolio with that set it and forget it mentality. It's not one to overexpose yourself to, but really, I think they will continue to return value to shareholders in other ways when growth becomes challenged. Yeah, and I think the direct-to-consumer

story is an especially important one to underline here. I think, increasingly, with e-commerce, with these companies building their own hubs online, that increasingly will take a larger portion of revenue. But again, it's a pretty small percentage of revenue today. And that is a tailwind that, if anything, might accelerate. And I think right now we're seeing its effects in the domestic market. But those trends will start bleeding over internationally, too. And just how I see the future of retail, you're going to have a few hubs that are more like the everything stores. And then you're going to have the more specific brands that people go to. Over the past couple of years, we've seen the dollar shave clubs of the world really

start to bleed out the other competitors there that go in a more direct way, and making that transition is hard. So, I think the struggles could exist for a while longer. Yeah. Meanwhile, you do not have an inexpensive stock. The stock trades at, after a recent resurgence in price, 27 times trailing earnings, 26 times forward estimates, as we don't see much EPS growth directly ahead. Real quick, Jason, how much of this is Adidas? I get Under Armour's self-inflicted wounds and the wholesale story that you mentioned with Nike, but isn't Adidas also taking market share here?

Absolutely they are, and so is Puma. We're seeing a resurgence from brands that sort of took a backseat for a very long time. And really, we've been kicking around this question a lot in Million Dollar Portfolio, do these companies really have any semblance of pricing power anymore. And I think the answer is becoming very clear that no, they do not. Alphabet announced that Eric Schmidt will be stepping down as chairman of the board, a role he has served since 2001. Schmidt was also the longtime CEO of Google, taking the company public in 2004. Aaron, I don't know if there's a Business Hall of Fame, but

if there is, Eric Schmidt is in on the first ballot. I totally agree. And I was just looking at the numbers. When he first stepped in as CEO in 2001. Google was an $86 million revenue-a-year business. Pretty amazing. When he stepped down as CEO in 2011, it was a $40 billion business. So, those results are amazing. And yeah, I think even when he was CEO, even when he stepped on as chairman, he had a lot of operational power. He was a key reason why Google was able to expand so quickly and still be able to hold things together and set up in a way where they could be profitable even as they launch things or acquire things like Android and YouTube, things

like that. And so, yeah, seeing him step aside today, he's done such a great job, but it makes sense. His role has naturally shifted away from operations, more towards bigger picture strategy and sales of making Google look a certain way around the world. And so, increasingly a political one, just representing the face. I think now that we've seen especially management changes within Google, such as Sundar Pichai becoming essentially the CEO of Google within Alphabet, Larry Page stepping up to be CEO of Alphabet, a new CFO, things like that, I think his role to really add the same amount of value that he was before has diminished. But he did such an amazing job in the time he was there.

More news from the executive ranks. Just weeks after Papa John's founder John Schnatter blamed the NFL for slowing sales growth, the company announced this week that Schnatter is stepping down as CEO. On January 1st, Chief Operating Officer Steve Ritchie will take over as CEO. Speaking of self-inflicted wounds, Jason, I was still a little bit surprised by this. I mean, this is the founder of the company, but clearly things were bad enough that he and others decided it was time to go. Yeah, and I think that's probably the right call, actually. I think you could argue that for Schnatter, it's become a bit more personal over time. I think a lot of times

you'll see with founder-led businesses, at some point or another, they start showing their worldview a little bit more. And that's not necessarily always the best thing for the operations of the business. I think many times, you see this need, when the company needs to take that next step. Perhaps the founder is better served as an advocate for the brand, for the business around the world, whereas you have someone who's also taking a separate role of actually running the business and making the numbers all work. Clearly, they are facing some big challenges there. Domino's has really stuck it to them here over the past couple of years. But Papa John's, plenty of opportunity there, indeed, certainly

to grow the company globally, speaking for sure. But again, I think we see these sorts of risks play out. Earlier this year, obviously, Steve Eltz is stepping down as CEO of Chipotle. I think that is the right call. I think he's to the point where he can only take that business so far. Another business that we've already mentioned here, but one that we've got our eye on in this regard, is Under Armour and Kevin Plank. You have to ask that question at some point, is the founder better off stepping aside and serving a different role? And I think in Papa John's case, this is probably good timing. You know, the stock dropped pretty sharply on this news because it's a surprise, but

I think it's ultimately a good move for Papa John's. New leadership seems appropriate at this point. He did step down from his CEO role as well in 2005 through 2008. And over those three years, the stock went up about 75%. So, it can perform without him. Coming up, Bitcoin, restaurants, and a special holiday edition of Stocks on our Radar. Stay right here. This is Motley Fool Money. Thanks again to 23andMe for sponsoring this week's Motley Fool Money. This holiday, give your friends and family the ultimate personalized gift, a DNA kit from 23andMe.

They can learn about their genetic ancestry, their inherited traits, even information about their health. What other gift can give you all that? So, this holiday, give a gift that is as unique as the ones you love with 23andMe. And now, through December 26th, get up to $50 off each kit when you go to 23andMe.com slash fool. That's the number 23, A-N-D-M-E dot com slash fool. As always, people on the program may have interest in the stocks they talk about, The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio

with Jason Moser, Jeff Fischer, and Aaron Bush. Bitcoin mania reached a new level of absurdity this week. Long Island Ice Tea Corp., a beverage company, announced that it is changing its name to Long Blockchain. That's right, they're still going to sell the drinks, guys, but now they are pivoting to explore opportunities in blockchain technology. And by the way, Aaron, it totally worked, stock up 175% in two days. Yes, and you can refer to me as Aaron Blockchain Bush from now on. No, I mean, honestly, the societal hype that has been built around Bitcoin and blockchain has been remarkable over the past year. And part of what's remarkable about it is that everyone

is interested, but almost no one understands it. And so, yeah, when you start seeing companies change their name to blockchain, which is something people don't understand, that can't end well. And Long Island ICT, becoming Long Blockchain ICT, isn't the only company to have done that. Bioptics changed their name to Riot Blockchain. And there are so many other companies, just looking up before, that have launched divisions within their company that are just about, we build blockchain. It's like, what does that mean? Yeah, exactly. Jeff, this reminded me of the late 90s, where companies would come out and just say, oh, we're changing our name. We've added a .com to the end of our name.

And that made all the difference. The shares soared, even though people had no idea what it did. And that's discouraging and a little worrisome, that people are throwing their money around so candidly with things they know nothing about, just because of a name change. Remember Cosmos.com? I'm just reading about changing their name in January 1999. that stock soared, even though they did nothing. Yeah, all the .com, .net of the 1990s, this is reminiscent of that. Shares of Darden restaurants hitting a new high this week. The parent company of Longhorn Steakhouse, Capital Grill, and of course, the Olive Garden, put up better than expected numbers in the second quarter. It's

a good quarter, Jason. Well, no need to convert this to Darden blockchain, or the Olive blockchain, or something like that. Really, they are succeeding all on their own. And I tell you, every quarter, quarter to quarter, I'm always impressed with not only the success in the to-go sales that Olive Garden is witnessing, those to-go sales were up another 12% this quarter, it was the 13th consecutive quarter of same-store sales growth for Olive Garden. So, on behalf of Darden's Mannership, Steve, I doff my cap to you. Even though you were probably out for a bit with your tonsil surgery, I'm sure you're back in full effect there and helping that sales number grow, right?

I am. And I will say, we had our holiday lunch for our department at The Olive Garden. Hey, now! You're welcome, shareholders. Well, I think that's the nice thing about it. The traffic there is really part of that same-store sales growth. And restaurants really are all about traffic. If you ask management what they feel their competitive advantages are, they'll tell you, leveraging their scale to create cost advantages, using data, not only on the restaurant side, but learning more about what their consumers want, and then the process and the culture. I think

the last two are a bit subjective. The first two are not, and I think that's where they're really shining. Alright, let's get to the stocks on our radar. And in keeping with the holidays, Jeff Fischer, I'll start with you. You can hit Steve Broido with a lump of coal stock, or if you think he's on the nice list, you can give him a good stock. Alright, Steve. Your lump of coal would be Dillard's department stores. Ticker is DDS. They've really destroyed value the last five years, although they've held up OK this year. But the problem I see there is, management is not innovating, even as they come under fire from all kinds of different retail. But

to give you a good stock, I believe Applied Materials, ticker AMAT, the world's largest maker of semiconductor chip manufacturing equipment, they should continue to benefit as chips become ingrained into everything. Steve, question about Applied Materials? How does a company like this not just become a commodity? Well, they're supplying the tools that make it possible to make the chips. So, supply and expertise and tools that you can't just get anywhere else. O' Jason Moser?

Well, if Santa was going to give Steve a lump of coal, I think it would probably be shares of Bed Bath & Beyond. Don't believe the hype. We've been calling this thing a value trap for the last five years. It's still a value trap today. Debt picture just getting worse. And when sales start slowing down and your debt gets higher, guess what? It becomes really difficult to run the business. So, Santa would just be laughing, hee-hee-hee, all the way back up the chimney. But Steve, I'm going to give you actually a stock for your radar. I've talked about it before. IDEXX Laboratories, ticker IDXX, is a veterinary care company. They provide the machinery and a lot of the testing equipment, the diagnostics

for the private practice vets, which there are a lot of them out there. It's a $16 billion market opportunity. IDEXX lights the path with industry-leading research and development investment. Tremendous opportunity. I tell you, I was just at my vet the other day for our newest addition to the house, and he just swears by IDEXX. Loves it, and he says all of his colleagues feel the same way. I'm getting this thing in a million-dollar portfolio in 2018. Should we dress our pets up this holiday season? Should we put costumes on our pets this Christmas? Absolutely, positively not. Aaron Bush, we've got about a minute left. Alright, so my lump of coal would be Frontier Communications. And this is for you if you're

really into the bleeding edge of landline and DSL technology. And if you're into a company that's fallen 85% this year. It has a market cap of about $500 million, but it has $17.5 billion in debt. That would be my lump of coal. But the stock that I like for you is a new company to me called Alteryx. They're a self-service data analytics platform that really runs the gamut and can help companies analyze data in all sorts of ways. I don't have the time to get into it, but it's pretty exciting. And the ticker? AYX. Steve? Explain data analytics to someone who may not understand that.

Okay, so just say you're getting data from the Google Analytics and AWSs of the world. This company can help merge that together in a usable way, run it to find useful value, and then spit it out and visualize ways to help make good decisions for the company. What do you like, Steve? I think that I'm going with IDX. All right, guys, thanks for being here. Up next, best-selling author Dan Ariely with some thoughts on how we can be smarter about our money. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. Dan Ariely is a professor of psychology and behavioral economics at Duke University. He is the founder and director of the Center for Advanced Hindsight. He's also the author of several bestselling books. And his latest book is Dollars and Cents, How We Misthink Money and How to Spend Smarter. Dan, And thanks so much for taking a little time. My pleasure. Good to be back. So in the introduction of this book, you write that thinking a lot about money would be great

if it led to better decisions, but it doesn't. So why are we as human beings particularly bad when it comes to making decisions about money? So there are mainly kind of two types of ways in which we're bad. The first one is that money is all about opportunity cost, right? Every time you spend $5 on a cup of coffee, you should be thinking to yourself, what else wouldn't I be able to buy if I spend $5 on a cup of coffee? But the reality is it's really hard to think about. Just think to yourself, when was the last time you thought about opportunity cost?

You know, money is a wonderful thing. And being about opportunity cost is part of the wonderful thing that money is. But it also means it's really, really hard to think about money. So that's the first problem. Money is all about opportunity cost, but it's hard to think about opportunity cost. The second thing is that many of our decisions are about now versus later. And when it comes to now versus later, we often make bad decisions. And this includes decisions about overeating and under-exercising and texting and driving and you name it.

So what happened is that we're just not designed to think about money the right way. And then maybe the final thing is that the environment around us doesn't necessarily want us to think carefully about money. The environment around us often wants us to spend without thinking. So there's something called the pain of paying. And the pain of paying is the idea that when we pay with cash, we feel bad and we don't spend as much. When we pay with a credit card or Apple Pay or Android Pay,

we don't feel as bad and we're likely to spend more. And if you think about where the payment industry is going, it's going in the direction of getting us to spend more, thinking less, and therefore saving less. All of those things together mean that it's really, really hard to think about money the right way, and the environment mostly doesn't help us. Well, you just touched on something that has come up several times recently on our

show, and it's an investing trend that, for people who are investing into this trend, it's worked out pretty well so far, and it is the war on cash. The fact that Visa and MasterCard and startups like Square and PayPal are really looking to just eliminate cash And so while that can be lucrative for people to invest into, it sounds like as consumers, that trend is actually putting us at greater danger of making more bad decisions. That's right. Now, I do want to be clear that it is possible to do things differently, right? So when we move from cash to cashless society, there's no question that the way things are set up right now, we have less pain of paying, we think less about spending, and therefore we spend more. But it doesn't have to be this way.

I'll give you one example. There was a beautiful study. They took men who were migrant workers. Those men went to the north of India, and they got paid. once a week, and their hope was that they would make money and send money to their families. And as you would expect, every place there's migrant workers, temptation shows up as well. So what happened is that eventually these men spend, you know, send less money home than they hope to. Now imagine three conditions. A third of the people get an envelope with cash on Friday,

and they end up spending too much and sending not enough money home. Another group gets the same amount of money divided into four envelopes instead of one. What happens? These people send more money home and interestingly, they stop at the end of an envelope. Once they open an envelope, they end up spending all of it. But at the end of the envelope, they think a little bit. They say, do I really want to open another envelope? Often they say no and they send more money home.

and the last group got also four envelopes but the name of their kids were written on these envelopes this one is for johnny this one is for tom whatever the name of the kids were those people ended up sending more money home because the opportunity cost of that money was more clear to them so imagine that you and i were sitting together and thinking about how to create an electronic wallet that would get people to think more carefully we would certainly create something like these envelopes. When people got their salary we would certainly say this part of your salary is already committed to pay for your school tuition, the school tuition for your kids and this part of your salary is already should be saved for a rainy day because once a while your

car breaks down and so on and so forth. And if we did that it would be electronic wallet but it would help people think better. So I think in principle we could get electronic wallets to help people think better and be even better than cash is just not the direction we're going right now. So if the way we are spending our money is becoming, for lack of a better phrase, more invisible, companies are doing what they can to reduce the pain of paying so that we will spend more money. It also seems like the same is happening with saving. And this is something you've written about where there was a point in history where what you were saving was much more visible to your family and friends than it is now. That's right. And that was actually, I have to say,

for me was, even though it might seem trivial to everybody who's listening, for me, it was kind of a big revelation. And it came to after a long study that we did in Kenya about savings. But But the point was that 1,000 years ago, we basically saved in goats, you know, livestock. And when we saved in goats, you could come home at night and you could see how many goats your neighbor has and how many goats you have, and you could compete with who has more goats. And that was great. But then we invented money, and then we invented digital money. And imagine we have only two activities, spending and saving.

And spending is really visible. It's visible to ourselves. It's visible to our neighbors. And saving and insurance is completely invisible. Is there any wonder that we pay lots of attention to the thing that is visible and no attention to the thing that is invisible? Of course, it's no wonder. Now, I don't think anybody designed this on purpose.

I don't think a thousand years ago we said, oh, let's take saving and insurance and make them invisible. But that's actually what we did. And what it means is that we should probably rethink about money and we should rethink about savings and we should think about how do we get people to think about it, make it more visible. Now, it doesn't have to be visible like in a website for the whole country, but we do have to think about how do we make it more salient so that more people think about this. Well, and part of thinking about money, whether it's spending or saving, is something that you touch on in the book, which is assessing value. And the fact that a lot of times how we assess value has little to do with actual value. And one of the examples you use is probably well known to retail investors.

And it's the case of JCPenney getting a new CEO in Ron Johnson, who really tried to double down on being very transparent about the value being offered to customers, and it just utterly failed. Yes. And it's a very sad story, right? Because the guy was honest, and he says, I don't want to mark things up and then call them on a discount and give them at the same price. He thought that this practice was immoral, and he's probably right. But what happened is that when you look at a T-shirt and it's $40, it's very hard to figure out how much is it worth. But it's in the same T-shirt, and it says it used to be $80, and now it's less. All of a sudden, it looks like a good deal.

Now, it's because we use relativity in our evaluation. it's not true, it's not correct, it's not, you know, moral, but nevertheless, that's how we assess, that's how we assess value. And we assess value in all kinds of ways that have nothing to do with the real value. I'll give you another example. Imagine you come to Durham, North Carolina, where I live. You come to visit and you are trying to find a parking spot. and you park by a parking meter and you look in your pockets for a quarter and you don't find a quarter. And I pass by and you say, excuse me, do you have a quarter?

And I say, yes, I have a quarter. I'll sell it to you for a dollar. Most people say something profane and they take their chances. But think about the second case. You're trying to park, parking meter, you don't have a quarter. I pass by and you say, excuse me, do you have a quarter? And I say, look, I don't have a quarter, but there's a bank four blocks down the street. If you want, I'll run very quickly to that bank.

I'll change a dollar for quarters. But if I do that, how do you feel about giving me a dollar for my trouble? Now most people feel fantastic. They feel it's a great deal. Now, in any real sense, you are worse off in the second case than in the first one, right? You have to wait for somebody to run and come back, and you get sweaty coins. But why are people happier? Because somebody ran for us.

Now, somebody running for us doesn't give us any benefit, but it does give us a sense of increased fairness, right? We're not just paying too much for a dollar. Somebody is running for us, and now it's actually a deal. We're saving money. It's a great deal. So things like that, that we assess value by relativity, we assess value by the effort,

and that something has, we're assessing things by weight, when weight is irrelevant. All of those things make a difference. Speaking of assessing value, one of, if not the biggest, investing story of 2017 is Bitcoin. What do you think of Bitcoin? Okay, so I think I have kind of three separate answers. One is that I think blockchain by itself is a really interesting technology. and that I like the transparency and so on. The second thing is I really like things like Ethereum.

I love the idea that money can be connected with a smart contract. It cannot be changed later. And I think the opportunities we have there are just fantastic. So imagine that a store could say, come and buy coffee, and if at some point during the day we reduce the price of coffee, it would retroactively, everybody would get the money back. Right. And they could write it in the contract. It will be enforceable and everybody would know that. Or I mean, you can you can imagine all kinds of things where money has a layer of a programming language that can have a contract and how money would move and move back and forth in a dynamic way.

And it could be enforced even for small amounts of money. So that's that's really exciting. The question about Bitcoin as a currency, that one, I have to say, puzzles me. It's hard for me to understand outside of using it for fun to say, oh, I want the Bitcoin so I can feel like I'm part of the system in some way. Or to order illegal things. It's hard for me to understand why Bitcoin by itself is going to be useful. But I do think there's going to be an era of cryptocurrency that will have smart contracts like Ethereum is going to be incredibly exciting. More with Dan in a moment. This is Motley Fool Money.

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Welcome back to Motley Fool Money. Chris Hill talking with Dan Ariely. Last month, I got the chance to sit down and talk with Michael Lewis, whose latest book is The Undoing Project, which is about the relationship between Daniel Kahneman and Amos Tversky, two Israeli psychologists. And you once said that you consider yourself to be among the children of Kahneman and Tversky. They are very different people in terms of their personalities. When you think about Kahneman and Tversky, what comes to mind? So they're both brilliant individuals. And, you know, I'm actually probably more closer to their grandchild from that perspective, because when I was an undergrad in Tel Aviv,

and most of my professors at the time were their students, right? And what was so amazing about them is that they kind of invigorated the whole field with their enthusiasm and with their experimental approach and kind of even kind of testing things and then retesting and checking how things are moving. And because of that they created a whole generation of professors that I got to be the student of those professors that they changed the field. Now, when Amos and Danny started, they did lots of research on hypothetical questions and lots of research on gambles, right?

You have a probability of 80%, 20%, blue balls, red balls, all kinds of things like that. And one of the exciting things that happened to behavioral economics in the last few years was that we moved from the lab to the field. Partially, information technology allowed us to do it. And partly we started asking questions about real life. We started asking questions about how people buy insurance and how people buy groceries and, you know, how people online date. And I think this movement from doing abstract research about general questions to basically dealing with the complexities of everyday life, you know, this is kind of good progress for science. But it made behavioral economics much more applicable, much more interesting for daily life, and I think eventually much more useful in terms of helping us get people to make better decisions.

This time of year, the holidays, a lot of people are, including myself, are eating more probably than they should and drinking more than they should. You're one of the people I enjoy following on Twitter. have you helped design a scale and as a follow-up am i correct that the scale in question doesn't actually tell you what your weight is yes and almost yes so so yes so here are a couple of things about scales we know it's good to step on the scale every morning it's not good to step on the scale every night and the reason it's good to step on the scale every morning is you remind yourself that you want to be healthy, right? So that's a good thing. We also know that weight fluctuates a lot. Weight can fluctuate a few pounds a day. If you're obese, it can be many

pounds a day. And because of loss aversion, or in this case, gain aversion, a day that you gain two pounds is really miserable. A day you lose two pounds is happy, but it doesn't make up for it. So the overall experience people have with the scale is negative, right? You stand up on this thing and it's mostly bad news. And finally, people expect the body to react much faster than it actually does. So people say, if I go on a diet for a whole day, I certainly should lose weight tomorrow. But that's not true. It can take much longer. It can take a couple of weeks. It can take 10 days. So what happens is people go on a diet for two days, then they step on the scale and the weight goes up by half a kilo or a pound. Then they go on a

day of Netflix and the weight goes down. And people get very confused and demotivated. So we said, let's separate two functions. Let's get people to step on the scale. It's a good thing to step on the scale. Let's get them to step on the scale. And then we said, on top of that, let's give people feedback, but not at the granularity of a day-by-day granularity. Let's give them a running average of the last three weeks. And then let's give it in a trend. So a trend could say, you're just the same, slightly better, slightly worse, much better, much worse. And if you think about it,

information often is not about historical accuracy. It's about understanding the relationship between cause and effect, understanding the relationship between what you have been doing and what are the consequences for your body. And because of that, we don't want to show people fluctuations.

By the way, the same is true in the stock market, right? You have lots of random fluctuation in the stock market, and you ideally would want people to ignore those and not to create stories about those. So we did a study with this approach. We took a group of low-income, relatively obese people who work at a call center, and a third of the people got a regular scale that reported their weight in pounds with a decimal. and two-thirds got R-scale that doesn't have a display and give people the trend of the last three weeks. And what we found is that the people who got the regular scale

gained a bit weight every month and the people who got R-scale lost 0.7% of their body weight every month for five months. The study lasted five months. And this is incredible news, right? It basically says you take a scale and you just make it better and all of a sudden people can use the information much better and start understanding what's causing weight changes

and control their weight in a better way. You can follow Dan Ariely on Twitter. You can pick up his latest book, Dollars and Cents, How We Misthink Money and How to Spend Smarter. It's available everywhere. Dan, thanks so much. As always, thank you. That's all for this week's show.

I'm Chris Hill. We'll see you next week.